How much can I borrow with bridging finance?
This depends on the reason for the loan. When borrowing against residential security, it’s possible to borrow up to 80% of the property value from a trusted lender with manageable repayment terms. Lower loan to values (LTVs) will result in lower interest rates, with the lowest interest rates available up to 50-55% LTV.
For commercial property and land, it’s possible to borrow up to 70% loan to value, with 75% possible for some semi-commercial properties.
What interest rates should I expect to pay?
Terms vary between lenders but, as a leading broker, we can secure bridging loan lending terms for property developers starting at 0.45% per month, with rates of 0.65% per month available at 75% LTV.
Of course, these rates are at the lower end for this type of finance, so they are reserved for the strongest applications. If you’ve suffered adverse credit, or don’t fit the criteria for these products, you may pay a higher rate.
There is a lot of variation in the rates offered, and are very dependent on circumstances. As such, it can be hard to give a meaningful average rate. Our experts can usually give you a strong indication of likely rates within minutes when running through your situation over the phone.
Although the interest is expressed monthly, it is usually rolled into the loan and paid when the loan is repaid. This means that there are generally no monthly payments to make during the term of the loan.
Can bridging loans be taken out in the name of a limited company?
Yes, we can secure bridge loans in the name of ltd companies or individuals.
We can also arrange loans for foreign nationals, overseas or even offshore companies, where reasonable due diligence can be undertaken.
Bridging loans are key tools for property developers
Bridging loans are a key tool for property developers, although they should not be seen as a replacement for development finance. As is often stated, bridging finance lending is designed to ‘bridge a gap’ for property owners and investors.
Bridging loans are becoming increasingly popular and affordable as more people are learning of their benefits as opposed to a mortgage or similar long-term loan solution. This is especially true in the property development market where a quick turnaround can mean the difference between turning a profit or missing out.
How does a bridging loan differ from development finance?
Development finance is designed to fund property development projects, with funds released in stages throughout the build. This works very well for larger building projects but tends to be too complex for smaller projects.
Property refurbishment projects or smaller conversions may be best suited to a bridging loan. This is due to the simplicity of the product – especially when compared to the lengthy checks required to secure a mortgage. Bridging lenders may still release funds required for refurbishment costs across the loan term in stages, but they take a much more simplistic view of the process.
Bridging loans to acquire a site
When buying a new site with a view to gaining planning permission and developing, a bridging loan is often the most suitable product. Property development finance lenders usually insert a clause into the loan called a ‘mobilisation period’. This is the amount of time given to organising the build before works must commence.
This period is often as little as one month. This would not allow you enough time to complete your planning application, gain consent and begin work. By failing to do this, you would be in breach of your lenders terms.
In addition to this, no matter how likely it may be, a planning application can never be 100% guaranteed to succeed. As such, no certainty can be given to the schedule of works and it would be impossible to agree to a development finance loan without planning permission.
In this situation, a bridging loan can be used to bridge the gap between purchase and development finance.
Refinancing to a bridging loan from development finance
When you’ve finished a project and the completed units are ready to be marketed, a bridging loan could reduce your finance costs. Where needed, and subject to the overall LTV, you may even be able to raise further capital to fund further investment in new sites.
This allows you to get on with your next project without having to wait for your cash to be released from your current one.
Funding to repay development finance before the units are sold tends to be looked upon favourably by bridging loan lenders. As a result, you may benefit from low rates and a simple application process.
Raising capital using a bridging loan
When looking to raise capital, bridging loans can be a great option. They can be completed quickly and benefit from a relatively simple application process. Bridging loans can be used to raise capital for property development in the following ways:
- Drawing capital from completed schemes
- Releasing equity from other owned property to buy a new site or to pay a bill
- To raise funds from a property for refurbishment or extension